Anti-flipping waiver reincarnated

Will the FHA waiver supporting flipper activity boost home sales volume in 2012?

Yes (64%, 93 Votes)

No (36%, 52 Votes)

Total Voters: 145

The Federal Housing Administration (FHA) has extended the waiver of its anti-flipping restrictions through December 31, 2012. The waiver allows buyers to continue using FHA-insured mortgage financing to purchase single family residences (SFRs) from sellers who have owned the property for less than 90 days – the concurrent or nearly concurrent double escrow or assignment arrangements for a resale.

Though the FHA traditionally did not insure financing for properties with a less than 90-day resell turnaround – a policy originally established to control frenzied property speculation by flippers – the rules were temporarily waived in 2010 in hopes of loosening buyer and seller activity and stabilizing real estate sales volume and prices. The extended waiver for the duration of 2012 will be a continuation of the original waiver.

Nationally, nearly 42,000 mortgages totaling more than $7 billion on properties resold within 90 days of acquisition have been insured by the FHA since the waiver first went into effect in 2010. This figure represents roughly 5,500 mortgages in California over a two-year period, based on our 13% of the nation’s population.

first tuesday take: Didn’t approve of the waiver in its first life. Nothing much has changed except the weather since then. [For more information on our response to the first waiver, see the February 2011 first tuesday article, The FHA – a flipper’s best friend.]

While the number of FHA-insured and financed flips is so low as to be statistically insignificant, the FHA’s indirect promotion of speculation is always unnecessary and breeds improper public expectations about the real estate market during periods of economic recovery.

The FHA appears to be of the opinion that providing a flipper with the path of least resistance will surely open the floodgates to the recovery of sales volume in the housing market (when exactly those floodgates opened in the last two years while the first waiver was in action is a question we would like for them to answer). If it so happens FHA soothsayers are correct this time around, California brokers and agents must be on a red alert to prepare their clients for a resurgence in flipping.

Yes, the state’s real estate-owned (REO) activity is frighteningly high, yes, our sales and prices are abysmal and yes, flippers can provide quick cash for REO properties in such a drought as this. But no, California does not need another generation of speculators encouraged to sweep up properties dirt cheap and then flip them at higher figures for a profit beneficial to no one else but themselves (since flippers add no value to the property as renovators do). [For more information on the effect of speculators in SFR sales, see the August 2010 first tuesday article, Speculations on speculator suppression.]

Brokers and agents representing homebuyers in a flipper’s resell scheme are bound by a fiduciary duty to their clients. In any real estate transaction (especially those involving a flipper), an agent must disclose all material facts which might influence the sale price offered to be paid for the property. One material fact is the agent’s knowledge or belief that the seller is a speculator engaged in resale flipping activity, which if disclosed might well influence a homebuyer’s pricing of the property. [For more information on an agent’s fiduciary duties in transactions involving speculators, see the June 2010 first tuesday article, Agency duties: the flipper’s quandary.]

8 Comments

Sharron Bethards
on February 21, 2012 at 6:23 pm

Although I believe FLIP sales can help with in this slow Real Estate time frame, I do feel some seller’s are just hiding big problems on their homes. Since most FLIP purchases are First Time Buyers using FHA as the loan product a good Home Inspector will find these problems for the buyer. As a lender I am finding the sellers when given the evidence of these problems the sellers are fixing them to keep the purchase going. However, I do feel some FLIP sales are passing on the problems of the home to buyers, who may not see these repair problems for months or even years down the road, when thousands of dollars may now be needed to fix these problems.

Voting “Yes” on whether or not allowing “flipping” will boost homes sales in 2012, does not mean that I am in favor of the practice. Although I am very much opposed to it, it does seem that if it has boosted home sales since 2010, it will continue to do so.

Every body thinks that they’re right no matter what it is and especially if there’s a buck to be made. I venture to say, that is the reason the situation of today exists. I understand how Eric and some others feel but that’s why it’s necessary to have independent evaluations done by others not directly involved. It sort of removes the cloud of profit from activities and disallows abuse thats hard to see. No offense intended nor pointing at bad guys.

This author dumps all manner of buyers into the same bucket, speculators, flippers and renovators. Let’s define these. A speculator buys something, adds no value and tries to resell it for more. A flipper ads value to the property, as does a renovator, they are one in the same as far as I am concerned. I buy property that can’t be financed, fix it up and then resell it. That’s a renovator by your definition, but when I tell people what I do they say “Oh, so you’re a flipper.”

I am buying properties that can’t be financed, that buyers do not want because of the damage that has been done to them by the owner that lost the house, or neglected it or died in it, etc. I then clean up the property. I get permits for code violations, illegal additions etc and bring the property back to life.

I deserve to make a profit and to get FHA financing on the house. It does not take three months to do this. I can spend $40,000 to $75,0000 on a house in 4 weeks.

Without the 90 day flip rule wavier I have to wait till the 91st day to accept an offer. This makes this business less appealing to me. Then the bad houses will sit longer and good buyers will not have this quality house available to them.

I have cleaned up the “worse house” on the block countless times. The neighbors come over, the city inspectors, even cops and thank me for cleaning up the house. Yet your article stays I’m a speculator, that I add no value and don’t deserve to have FHA financing available to my sales.

I think you don’t know anything about real estate and shouldn’t be writing for a real estate website and the editors at First Tuesday should know better.

The “flipper” has a place in this market and any market and does a necessary job that adds value to the community. The FHA flip rule shouldn’t and need not exist if good underwriting is done on a loan, either the house is worth the price that the buyer is paying or it isn’t. If it is, FHA should finance it, if it isn’t they shouldn’t. The prior purchase price or who is selling it or how long they owned it should have no bearing on the loan. Frankly it’s discriminatory, either the house has the value and should be approved for financing or it doesn’t.

I have purchased 43 properties through the 46 years I have been in business during which in a down market during Carter’s admin. I lost 8 and then the wife left, (no money, no honey), at present, there is no market, God help the idiot that pays a commission on purchase and pays a commission on a sale in this market it is a lose lose proposition. Have no fear there is no shortage of idiots, let them go their way and earn commissions off of them while they last, just disclose to them what you must.

Most Prudent Investors in today’s market, are looking for long term cash flow, although at times a flip may come into view that you can’t resist. As an agent/Investor, I have yet to find a property that I would consider a profitable deal that matches my requirements.

Featured Comment

Zestimates are great conversation starters with sellers and buyers. Zillow has done more for our bottom line than NAR ever has or will. Don’t fight the current of the river, learn to run with it. Disruption is inevitable in any industry that is fragmented or inefficient. Granted, it does feel like armchair experts and platforms are plentiful in real estate these days, but when the tide rolls out we will see the value proposition of the truest professionals in this industry shine once again.